Drug Channels News Roundup: August 2011

Here is my monthly look at noteworthy news stories for your reading pleasure. Perfect for a lazy afternoon in August! In this issue:

• The PBM Roll-Up Begins: SXCI makes a move

• After Heparin: A worthwhile study on the pharmaceutical supply chain

• Et Tu, NACDS? A surprising attack on PBMs

Plus, The Onion asks some average Americans for their thoughts on the upcoming generic pipeline.

A Controversial New Study on Mandatory Mail

While we're on the subject of mandatory mail this week, here’s a new article from The American Journal Of Managed Care that's sure to cause controversy: Adherence to Medication Under Mandatory and Voluntary Mail Benefit Designs.

Why? The study found that patients who were new to mail had much lower adherence with mandatory mail compared to a voluntary mail benefit design.

The results will surely be exaggerated by foes of mail order pharmacy, although the negative findings only apply to patients “without previous mail service pharmacy experience” and with benefits managed by CVS Caremark (NYSE:CVS). Patients with previous experience using a mail pharmacy had similar levels of adherence whether the use of mail was voluntary or mandatory.

The results highlight a challenge for Pharmacy Benefit Managers (PBMs) in growing mail pharmacy participation rates. Or perhaps the results show an as-yet-unrecognized problem in the way CVS Caremark introduces patients to mail order?

UPDATE: Read Express Scripts' response to the article.

FTC Slams NY Anti-Mail Bill; Insights for ESRX-MHS?

The Anti-Mandatory Mail Order Pharmacy Bill (New York Assembly Bill 5502-B) now sits on Governor Cuomo’s desk awaiting his signature to become law. The lobbying has been intense from both sides.

Yesterday, the Federal Trade Commission (FTC) weighed in with a letter to New York State Senator James Seward. Their conclusion? “We are concerned, however, that the Bill will have the unintended consequence of harming consumers.”

Here are at least two good reasons why you should pay attention to the FTC's letter:

• The FTC explains how they think about PBMs, pharmacy, and mail order. There’s some common ground with my comments in The Unexpected Losers from New York’s Anti-Mail Bill.

• Certain statements in the letter reaffirm my view that the FTC will eventually approve the Express Scripts (NASDAQ:ESRX) / Medco Health Solutions (NYSE:MHS) merger per ESRX-MHS: Antitrust Issues.

Read on for highlights and additional analysis. Your comments are welcome and encouraged.

Meet with me at NACDS in Boston

I will be attending the 2011 NACDS Pharmacy and Technology Conference on August 28 and 29.

I have a few meeting slots still open, so please send me an email if you’d like to arrange a one-on-one meeting in Boston. I'd be pleased to catch you up on some of the things I have been working on with my pharmaceutical manufacturer clients, such as:

• Channel and contracting strategies for specialty drugs
• Training to increase the business acumen of national account teams
• Deep-dive economic analysis of key customers

Today's video bonus (embedded below) is Crucial cancer drugs in critical short supply, Wednesday's CBS Evening News story on DOXIL^®. The video features a brief cameo by a mysterious "drug supply expert" whom you may recognize. (Hint: my wife is very proud.)

Who Will Pay for Prescription Drugs in 2020?

Yesterday, I looked at CMS' Bright Future for Drug Spending in 2020. Now let’s see who will be paying for all of these drugs.

In a major reversal from its pre-health care reform forecasts, CMS projects that private insurance will pay for a greater share of retail prescription spending than public funds will pay.

Hmm, how can this be?

Well, it turns out that CMS classifies coverage via state-run Health Insurance Exchanges (HIE) as "private insurance." While technically true, it is a bit misleading about the sources of payment. A big chunk of "private" coverage will actually be paid for by the government through subsidies.

Read on for a look at the past, present, and future of payers, along with some thoughts on what the forecasts means for manufacturer contracting and PBM strategy.

CMS' Bright Future for Drug Spending in 2020

The boffins at the Centers for Medicare and Medicaid Services (CMS) just released their new, post-health care reform forecasts for national health expenditures (NHE). You can read the full Health Affairs article here: National Health Spending Projections Through 2020: Economic Recovery And Reform Drive Faster Spending Growth (free download).

My number crunching highlights the good news for the pharmacy and pharmaceutical industries:

• Annual prescription drug expenditures will double in the next 10 years to $512.6 billion by 2020.

• Drug spending growth will grow at a compound average rate of 7.1% from 2010 to 2020—faster than overall health expenditures. As a result, prescription drug spending is projected to be 11.1% of NHE vs. 10.1% today.

• Health care reform will add an extra $35.2 billion in annual drug spending by 2020.

Despite the near-term patent loss gloom, CMS provides plenty of reasons to be cheerful about the future of the pharmaceutical industry, even if you don't study nuclear science and love your classes.

Tomorrow, I’ll look at the surprising changes in payer mix buried in the CMS data.

All is Not Lost

Thanks to everyone for the nice feedback on my ESRX-MHS series.

But now the weekend approaches. How about a fun new video to make you smile from the band OK Go?

If you have the Google Chrome browser, visit http://www.allisnotlo.st. Enter a message on the site and wait until the end of the video to see something awesome.

You can also watch the non-interactive version on YouTube. Embedded below for your viewing pleasure.

Enjoy!

ESRX-MHS: Wholesalers, Other PBMs, and Walgreens (3 of 3)

Welcome to the last chapter in my review of the Express Scripts (NASDAQ:ESRX) and Medco Health Solutions (NYSE:MHS) merger. Here's the program:

Part 1: Strategic and Market Analysis
Part 2: Antitrust Issues
Part 3: Second-Order Effects on Wholesalers, Other PBMs, and Walgreens (Hint: you’re reading it right now!)

Today, I look at how the merger could affect other players in the channel. My observations:

• The deal could be a blessing in disguise for AmerisourceBergen (NYSE:ABC), although the conventional wisdom favoring Cardinal Health (NYSE:CAH) is probably correct.

• Mid-market PBMs—Catalyst Health Solutions (NASDAQ:CHSI), SXC Health Solutions (NASDAQ:SXCI), and Prime Therapeutics—have big new growth opportunities.

• Expect a quick resolution to the Express Scripts-Walgreens (NYSE:WAG) dispute due to Walgreens’ enhanced negotiating position following the merger announcement. I wonder if Express Scripts has figured this out yet?
  

Pembroke Consulting clients and Gerson Lehrman Group clients should feel free to schedule phone calls with me for additional comments beyond what I discuss below.

ESRX-MHS: Antitrust Issues (2 of 3)

Welcome to Part 2 of my musings about the merger of Express Scripts (NASDAQ:ESRX) and Medco Health Solutions (NYSE:MHS). Here's the schedule:

Part 1: Strategic and Market Analysis (yesterday)
Part 2: Antitrust Issues (today)
Part 3: Second-Order Effects on Wholesalers, Other PBMs, and Walgreen (tomorrow)

Right now, I give the deal a 60% chance of being approved by the Federal Trade Commission. It’s going to be a very tough fight for antitrust approval, but perhaps not for the reasons you think.

The Agreement and Plan of Merger filed on Friday gives us a peek at the companies’ strategy for clearing the antitrust hurdles. But note that there is no termination fee if the companies don’t get antitrust clearance.

As I mentioned yesterday, I can only scratch the surface of the antitrust analysis on Drug Channels. Pembroke Consulting clients and Gerson Lehrman Group clients should feel free to schedule phone calls with me for additional comments beyond what I discuss below.

ESRX-MHS: Strategic and Market Analysis (1 of 3)

We’ve now all had the weekend to digest the surprising merger of Express Scripts (NASDAQ:ESRX) and Medco Health Solutions (NYSE:MHS).

I'm going to examine the deal over the next three days. Today, I focus on the marketplace impact and strategic motivations behind the deal. Tomorrow, I'll look at the antitrust challenges, which appear to be different than many people believe. On Wednesday, I'll discuss derivative effects on mid-market PBMs, pharmaceutical wholesalers, and Walgreen (NYSE:WAG).

As I argue below, the deal makes sense given the dynamics of the PBM industry. At the same time, a successful transaction would signal the end of the PBM industry's major growth opportunities and the transition to a more mature, highly consolidated market. The post-2015 world looks much less rosy for PBMs as the generic wave crests and the government crowds out private payers.

Although this is a longer-than-average post, I can only scratch the surface of the many issues surrounding this deal. Pembroke Consulting clients and Gerson Lehrman Group clients can schedule phone calls with me for additional comments beyond what I discuss below.

Express Scripts to Acquire Medco (Yes, really)

At 6:00 AM this morning, Express Scripts (NASDAQ:ESRX) and Medco Health Solutions (NYSE:MHS) announced a merger agreement. Here is the official press release: Express Scripts and Medco Health Solutions Sign Definitive Merger Agreement; Medco Shareholders to Receive $29.1 Billion

No, this is NOT one of my April Fool's jokes.

The companies have set up a website with details (www.BetterRxCare.com) and published a fact sheet with details. There is a conference call scheduled for 8:30 AM EST this morning. Click here to listen.

I estimate that the two companies processed almost 40% of prescriptions in 2010. (See chart below.) I'll follow-up next week as more details emerge. In the meantime, expect the pharmacy industry and possibly pharma manufacturers to protest this combination once the shock wears off.

Top Ten Drugs of 2016

EvaluatePharma just released their latest World Preview 2016, which projects prescription drug sales and R&D activity globally and in the U.S. The report is free with site registration.

I was especially intrigued by their predictions for the top 50 products in the U.S. in 2016. Below is a handy chart comparing the 2016 list with 2010’s top sellers.

• The top 10 U.S. drugs in 2016 are projected to have total revenues of $31.0 billion, which would be $8.4 billion less than the top ten in 2010.

• Rituxan, the projected #1 drug in 2016, wouldn’t even make the 2010 top 10 list after adjusting for likely product price inflation.

These forecasts succinctly illustrate the future of the pharma industry. The next-generation blockbusters will primarily be specialty products aimed at smaller patient populations than the mass-market blockbusters of yesteryear. Everything—commercial strategies, contracting, marketing, org structure—must evolve to compete in this new environment.